Half of the loans suspended by Greek banks in dangerous territory

The management of Greek banks face challenging times ahead in their bid to limit the amount of the new NPLs created by the pandemic. The detailed data published for the first time, by the European Banking Authority (EBA), showing insight on loans suspended due to the pandemic indicate that almost half of the debt frozen by Greek lenders, amounting to 22.2 billion euros, are in danger of becoming problematic in the near future.

The amount of new, non-performing loans, which will be created by the pandemic will largely determine the speed of consolidation of banking portfolios. At present, there is insufficient visibility for the loans that will be delayed after the end of the loan moratorium, while divergent estimates have been made by lenders and the Bank of Greece:

• Banking administrations, in the latest updates to analysts, appear optimistic that the new, non-performing loans that will be created by a pandemic after the end of the suspensions will be of the order of 5-6 billion euros.
• Less optimistic, the Bank of Greece has estimated the amount of new, non-performing loans will reach 8-10 billion euros, ie it expects that almost half of the suspended loans will be transferred to the problem category.

The data published by the EBA is more in line with the pessimistic estimates by the BoG, confirming that in the danger zone there are loans of 10.98 billion euros out of a total of 22.2 billion euros of loans that have been suspended.

Nevertheless, banks estimate that the problem can be brought under control with the economic recovery expected later this year, but also by using the tools offered by the government to ease pressure, such as the "Bridge" program that provides subsidies for loan  installments over the next nine months.

What the data shows

The general finding from EBA is that suspended loans from European banks will decrease significantly (by about 27%) between the second and third quarter of 2020, falling from 810 to 587 billion euros. The EBA notes, however, that the risks to banks are rising, as second-tier suspended loans, which are in line with international accounting standards before being classified as non-performing, rose from 16.7% to 20%. , 2%.

As far as Greek banks are concerned, the data provided by the EBA do not justify complacency:

• The amount of suspended loans amounted to 22.2 billion euros at the end of the second quarter of 2020 and remained unchanged at the end of the third quarter. Most of the suspended loans were business debt (55.5%).
• The loans of the second stage, which risk becoming non-performing, corresponded at the end of the third quarter to 32% of debt suspended. These loans, amounting to 7.1 billion euros, will be crucial for the banks to not move to the third stage, ie not to become non-performing, after the end of the suspension period.
• Greek banks have, by far, the highest percentage of deferred loans that are already classified as non-performing. Their share reaches 17.5%, compared to an average of only 3% for European banks. Of these loans, amounting to about 3.9 billion euros, banks are sure to suffer losses, as, according to the EBA, the coverage rate with provisions was 24.1% at the end of the third quarter. Thus, they will need to form new forecasts in order for these loans to reach the average coverage, which stood at 44.9% at the end of the third quarter.
• In terms of loans that already came out of the suspension at the end of the third quarter, these amounted to 5.4 billion euros and were mainly (67.4%) household loans. The development of these loans is not very encouraging, as almost one in three (32.5%) went to the second stage, while 28% of these loans were classified as non-performing. The corresponding European averages were much lower, 17% and 2.6%, respectively.